The cryptocurrency market has taken a significant blow, with nearly $1.25 billion in liquidations over the past 24 hours. As the market slid by almost 10%, Bitcoin dipped below $96,000, while meme coins experienced the highest losses on Thursday, signaling a sharp correction.
This downturn comes just after the Federal Reserve’s decision to cut interest rates by 25 basis points on Wednesday, which was initially seen as a potentially bullish move for the crypto market. Typically, interest rate cuts are favorable for cryptocurrencies, as they signal a shift toward a looser monetary policy. However, what caused the sudden market upheaval was the Federal Reserve’s inflation forecast and its projections for 2025.
Fed’s Rate Cuts and Inflation Forecast Trigger Bearish Sentiment
While lower interest rates are generally bullish for crypto assets, the Federal Reserve’s projections for 2025 have caused concern among investors. Jerome Powell, Chairman of the Federal Reserve, indicated that the U.S. central bank expects inflation to remain high and has forecasted only two rate cuts next year. This outlook has triggered a series of liquidations, with Bitcoin seeing over $45 million in liquidations and Ethereum nearly $30 million.
The massive correction in the crypto market has mirrored the turmoil in the U.S. stock market, where nearly $1.5 trillion was wiped out. The liquidations in the crypto market, although significant, are being seen as part of a larger trend, and some analysts believe that the market is merely experiencing a short-term flushout before a potential rebound.
Short-Term Pain or Long-Term Gain?
Despite the sharp sell-off, many analysts are urging caution. “Market corrections are a natural part of bull markets,” noted a prominent analyst known as ‘Titan of Crypto.’ These liquidations, they argue, typically happen during the cool-off periods at the end of a bullish year. Other analysts, including Philakone, have predicted that the bullish sentiment will return after December 17, extending through the first week of January.
There are also those who believe that we could see an altcoin season, where Bitcoin’s dominance in the market will wane as capital flows into alternative cryptocurrencies. Analysts like Lark Davis point out that the total altcoin market cap (excluding Bitcoin and Ethereum) is approaching its previous high from November 2021. This could signal a shift in market dynamics, where altcoins like Ethereum and Solana see renewed interest, driving a potential altcoin rally.
Bitcoin’s Long-Term Bullish Outlook Remains Intact
Despite the immediate volatility, it’s important to note that Bitcoin has had a remarkable year. It’s still up by nearly 130% this year, which indicates that the longer-term outlook for Bitcoin remains bullish. While macroeconomic factors like the Federal Reserve’s rate cuts have rattled the market, there are several developments in the cryptocurrency industry that could continue to push Bitcoin’s price upward.
One of the key developments is the ongoing Bitcoin acquisition strategy by MicroStrategy. The company, which holds nearly 2% of Bitcoin’s total supply, has been purchasing Bitcoin aggressively. In December, it bought $3 billion worth of Bitcoin, with prices hovering above $100,000. Other public companies, such as Marathon Digital Holdings (MARA) and Riot Platforms, have also made substantial Bitcoin acquisitions. These institutional purchases signal confidence in Bitcoin’s long-term prospects, even amidst market volatility.
🚨BITCOIN AND ETHEREUM PLUNGE AS $1.2 BILLION IN CRYPTO LIQUIDATED
The crypto market suffered sharp declines following the Federal Reserve’s latest monetary policy update, with Bitcoin dropping nearly 10%, hitting a low of $93,000.
Ethereum saw an even steeper fall, down 15% to… pic.twitter.com/KB5ebqdOE6
— Mario Nawfal (@MarioNawfal) December 20, 2024
A Potential Bitcoin Supply Shock Ahead
One factor that could support Bitcoin’s bullish outlook is its supply and demand dynamics. According to data from CryptoQuant, the supply of Bitcoin available for sale is shrinking. Accumulator addresses, which are entities or individuals that collect Bitcoin, have been adding 495,000 BTC per month to their holdings. Meanwhile, the stablecoin market cap has hit $200 billion, suggesting that fresh liquidity is flowing into the market.
On the other hand, the amount of Bitcoin available for sale has significantly decreased. The total sell-side liquidity, which includes Bitcoin held by exchanges, miners, and over-the-counter (OTC) desks, has dropped to 3.397 million BTC, the lowest level since 2020. The inventory ratio, which measures how long current Bitcoin supply can meet demand, has plummeted from 41 months in October to just 6.6 months. These factors are signaling a tightening market, which could potentially lead to a supply shock as demand for Bitcoin continues to rise.
Related news: Riot Platforms’ Bold $69M Bitcoin Buy, Boosting Holdings to 17,429 BTC
